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| Direction
of a dispute between BT and Telewest regarding Telewest's operator specific
NTS charges - September 28 2001 |
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DIRECTION UNDER THE PROVISIONS OF REGULATION 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 OF A DISPUTE BETWEEN BRITISH TELECOMMUNICATIONS plc ("BT") AND THE OPERATORS LISTED IN THE SCHEDULE OVER BT’S PROPOSAL TO INCREASE ITS NTS DISCOUNTS WITH EFFECT FROM 1 SEPTEMBER 2000
The DirectionExplanatory MemorandumChapter 3 History of the dispute Chapter 4 The Operators’ initial representations Chapter 5 The draft decision and responses by the parties Chapter 6 The Director General’s Considerations DIRECTION UNDER THE PROVISIONS OF REGULATION 6(6) OF THE TELECOMMUNICATIONS (INTERCONNECTION) REGULATIONS 1997 OF A DISPUTE BETWEEN BRITISH TELECOMMUNICATIONS PLC ("BT") AND TELEWEST COMMUNICATIONS PLC ("TELEWEST")
A. The Secretary of State granted to British Telecommunications on 22 June 1984 a licence (the "BT licence") under section 7 of the Telecommunications Act 1984 ("the Act") for the running of telecommunications systems specified in that Licence; B. By virtue of section 109 of paragraph 20 of Schedule 5 of the Act the BT licence has effect as if granted to British Telecommunications plc ("BT"); C. The Secretary of State granted to Telewest Communications ("Telewest") on 14 January 1997 a licence under section 7 of the Act for the running of telecommunications systems specified in that Licence. D. Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 ("the Regulations"), provides that where there is a dispute concerning interconnection between organisations, the Director General of Telecommunications ("the Director") shall, at the request of either party, take steps to resolve the dispute within six months of the date of the request. The Ddirection which the Director makes to resolve the dispute must represent a fair balance between the legitimate interests of both parties, and must be notified to the parties in accordance with Regulation 8(3). The parties are entitled to a full statement of the reasons on which the direction is based. E. BT and Telewest have entered into a Standard Interconnect Agreement F. Telewest claimed from BT retrospective repayment of 'overpayments' made to BT in relation to Telewest's operator specific "’D"’ for the period 1 April 1995 to 31 December 1999 in relation to NTS calls originated by Telewest and terminated by BT, or transited by BT to terminate on another operator’s network. This claim arises from differences between the operators in the calculation of the charge. G. The parties have been unable to agree these payments. H. By way of a letter dated 16 February 2001, in accordance with the provisions of Regulation 6(6) of the Regulations, Telewest has referred this dispute to the Director for direction. I. The Director has considered inter alia, the information provided by the parties and the matters set out in Regulation 6(8) of the Regulations. The principal points are summarised in the eExplanatory mMemorandum which accompanies, and is published with, this Ddirection. J. The Director issued a draft of this Ddirection and the Eexplanatory Mmemorandum which contains the Director’s reasons on 13 July 2001 and responses were invited by 9 August 2001. A further two weeks was allowed for comments on comments. K. Comments were received from BT and Telewest as summarised and discussed in Chapters 5 and 6 of the eexplanatory mmemorandum published with this direction. These comments have been taken into consideration by the Director in making this Ddirection. THEREFORE: Pursuant to Regulation 6(6) of the Regulations, and having considered the views of the parties and those matters set out in Regulation 6(8) of the Regulations, the Director makes the following direction to resolve the dispute between BT and Telewest: 1. BT is not required by this direction to make retrospective repayments to Telewest in respect of 'overpayments' made to it by Telewest in respect of Telewest’s deemed NTS retail price ('D') relating to NTS calls originated by Telewest and either terminated or transited by it for the period 1 April 1995 to 31 December 1999. 2. In this direction, words or expressions used have the same meaning as in the Act or the BT Llicence. 3. The parties shall modify their interconnect agreements to give effect to this direction. Keith Long DIRECTOR OF COMPLIANCE A person authorised under Paragraph 8 of Schedule 1 to the Telecommunications Act 1984 September 2001
Summary 1.1 This direction has been made in respect of a dispute between Telewest Communications (Telewest) and BT plc (BT) in respect of BT’s use of its own deemed NTS retail price ‘D’ rather than Telewest’s in respect of the calculation of interconnection charges for Local Call Fee Access (LCFA) and National Call Fee Access (NCFA) Number Translation Services (NTS) calls originated by Telewest and terminated by BT, or transited by BT to terminate on another operator’s network, for the period 1 April 1995 to 31 December 1999. 1.2 The Director General of Telecommunications ("the Director") has considered the representations made by Telewest and BT and other relevant evidence. He has also considered the oral submissions made by Telewest and their legal advisers Simmons and Simmons given at a meeting with Oftel on 26 March 2001. BT was given the opportunity to meet Oftel on the matter but responded that it had nothing to add to its written submission. 1.3 A draft direction was issued for consultation on 13 July 2001 and further submissions were made by both parties. These have also been taken into account in reaching the Director’s decision. 1.4 The Director issues this direction for resolution of this dispute in accordance with the provisions of Regulation 6(6) of the Telecommunications (Interconnection) Regulations 1997 (which implements Article 9(5) of the Interconnection Directive 97/33/EC), hereafter known as the Regulations. This direction sets out the Director’s decision on whether Telewest should receive retrospective repayment of any ‘overpayments’ made to BT as a result of differences between the level of each operators’ ‘D’. 1.5 In relation to Telewest’s operator specific ‘D’ for the period 1 April 1995 to 31 December 1999, the Director has taken the view on the evidence available to him that, whilst there was correspondence and meetings between the parties on the application of Telewest specific ‘D’s in relation to the period 1 October 1997 onwards in 1998, and in late 1999, at no time was there a formal agreement that Telewest’s ’D’ would be retrospectively applied. Telewest may have had an expectation that BT would do this, but failed to accept BT’s conditional offer. Telewest also failed to provide information within the time allowed by BT or to formally contest BT’s deadline dates at the time. BT’s offer therefore lapsed and no agreement was made. There is minimal evidence that Telewest disputed the non-application of Telewest ‘D’s for the period 1 April 1995 to 30 September 1997. 1.6 Having considered the facts specific to this dispute and the matters set out in Regulation 6(8) of the Regulations, in the absence of an agreement to do so, the Director directs that BT is not required to make retrospective repayment of any ‘overpayments’ made by Telewest by virtue of differences between its ‘D’ and BT’s calculation of its ‘D’ in respect of either BT terminating traffic or traffic which transited BT for termination on other operators’ networks.
Background Description of NTS 2.1The term Number Translation Services (NTS) describes a range of specially tariffed services, primarily used for telemarketing, which include 080X Freephone, 0845 Access (LCFA) and 0870 (NCFA). It does not include services operating on 07xx numbers such as personal numbering which, although technically similar in many cases, offer different services than those for which NTS was established. NTS services are offered at specific price points in order that customers calling from any fixed network will be able to associate the number range with a particular pricing arrangement. For example, 080X calls are free to the caller. BT’s Interconnection Charges for NTS 2.2 Under the Interconnection and Accounting Separation (ICAS) regime which was in place for the period 1 April 1995 to 30 September 1997, Oftel determined BT’s interconnection charges for each financial year and for the half year 1 April 1997 to 30 September 1997. The charges for each period were determined at the beginning of the period in question. This was done on the information produced by BT, primarily in their audited Financial Statements, for previous years and on forecasts provided by BT (interim charges). After the end of the period in question, Oftel then re-determined the charges payable based on the audited Financial Statements for the period (the final charges). The determination of final charges for each period replaced the corresponding determination of interim charges. BT then had to recalculate the amounts due to, and from, other operators and either paid, or sought payment for the difference, as the case may be. 2.3 On 30 January 1996 Oftel published the first determination of Interim Charges for BT’s Initial Standard Services for the year ending 31 March 1996 ("the 1996 Determination"). Annex 6 to the 1996 Determination described the new formula to apply to calls to BT’s NTS services. This formula is: Originating operator (ONO) retains: P - D + C Terminating operator (TNO) receives: D - C where: P is the actual retail price charged by the originating operator to the customer; C is the pence per minute charge for conveyance over a single tandem segment of BT's network determined in this determination (multiplied by the number of minutes of the call) plus an uplift to allow for retail costs incurred by the originating operator in handling these calls; D is the Deemed Retail Price for the call and is:
2.4 The principle underpinning the NTS formula was that originating operators should be able to cover their costs if they set prices at the deemed level. Terminating operators receive what is left from the retail price after the originating operator’s costs, and any transit operator’s costs, have been deducted (excepting Freefone calls). They can also seek payment from their own customers (ie the service providers to whom calls are passed) for terminating calls. 2.5 Although the 1996 Determination applied for access to BT’s services, Annex 6 to the 1996 Determination stated how the Director proposed that the rules set out should apply to other operators for their charges to BT for access to their NTS services. However, the 1996 determination did not apply to the costs that would be passed to a transit operator between the originating operator and the terminating operator. 2.6 In relation to Freefone, Lo-call and National Call services, Annex 6 to the 1996 Determination stated: "..…..For these calls ‘D’ is specific to the ONO, provided that it is less than, or equal to the maximum level of ‘D’ based on BT’s retail prices. When the ONO's retail price is greater than BT’s retail price, ‘D’ will be BT’s retail price. For these purposes, ‘D’ is based on BT's retail tariffs and reduced by 7.5% to allow for average discounts in retail tariffs charged by BT for these calls [at that time]. Oftel has considered BT’s representations to the draft determination, that 7.5% does not sufficiently reflect BT’s average discounts for 1996/97. After consideration, Oftel does not propose to change that percentage in this determination since it has been carried forward into BT’s interconnection offer under Network Charge Controls from October 1997 and BT has not provided an alternative figure. Oftel accepts, however, that average discounts will change in line with contemporaneous movements in actual discounts and the current level of discounts may be more appropriately used in setting interconnect charges in the future. 2.7 When ‘D’ is based on an ONO's retail price, it should be adjusted to take account of that ONO's average discounts. 2.8 ‘D’ for 0800 calls is 0.00 because these calls are generally free to caller. The values of ‘D’ for 0345 and 0990 shown in the tables which follow have been calculated from BT's published price list and using the average price per minute of local and national calls respectively taking account of the minimum charge. The use of a minimum charge means that very short duration calls are charged at a higher than average per minute rate. 2.9 The underlying principle is that when the ONO sets the charge for P equal to the Deemed Retail Price, it recovers its costs which are represented by the amount for C. The reason for determining that for Freefone, Lo-call and National Call ‘D’ is specific to the ONO is that, for calls such as 0345 calls, customers expect to pay the local tariff of their Operator, rather than BT’s local call charge. Failure to reflect this in the definition of ‘D’ would mean that those Operators whose local call charges are lower than BT’s would not recover their costs if they charged their own local call charge for 0345 calls. 2.10 It would not be appropriate to make ‘D’ specific to the ONO where ‘D’ is greater than BT’s ‘D’ without making ‘C’ also specific to the ONO. Otherwise, some ONOs would make a loss on the calls. The reason why ‘D’ for an Operator would exceed BT’s ‘D’ would generally be that Operators’ costs are higher than those of BT. For example, in the case of a mobile Operator, the local call charge is much greater than BT’s local call charge and this reflects the higher costs of the mobile Operator. If ‘D’ for an 0345 call were set equal to the mobile Operator’s charge for a local call, and the Operator set P equal to this, it would receive an amount equal to a single tandem charge, while both its costs and its charges to customers would exceed this." 2.11 The NTS formula was carried forward into all succeeding ICAS (Interconnection Accounting Separation) determinations of BT’s charges. 2.12 From 1 October 1997, Oftel introduced new arrangements for setting BT’s network charges, known as Network Charge Controls (NCC). Under this system, Oftel set the charges for BT’s interconnection charges which applied from 1 October 1997 based on long run incremental costs. BT then had the freedom to vary charges itself providing it kept within a RPI-X control. However, at the inception of NCC, Oftel determined that the interconnect formula for calculating for NTS charges remained the same as it was under the previous ICAS regime. 2.13 In 1998, Oftel chaired a number of meetings of a cross-industry working group (the NTS Focus Group). This group was set up for two main reasons. First, to address existing problems with implementing the NTS formula under NCC with a deadline for completion by 30 September 1998 and, second, to undertake a fundamental review of NTS policy. 2.14 Based on the output of the NTS Focus Group, Oftel, in March 1999, set out its proposals for review of the NTS arrangements in a consultative document The Relationship Between Interconnection Charges and Retail Prices for Number Translation Services. This proposed, inter alia, new arrangements for NTS where originating operators were encouraged to agree terms direct with terminating operators. This also allowed the possibility for operators to agree to bill each other direct instead of passing payments via BT. 2.15 In December 1999, OFTEL published a Statement in which it set out its conclusions about the future of NTS, OFTEL’s Statement on the Relationship Between Interconnection Charges and Retail Prices for Number Translation Services. This Statement confirmed that, whilst BT’s origination charge would continue to be set by the NTS formula, other originating operators should were free to set their own retail prices and negotiate with terminating operators the payments required for access to their services. These new arrangements came into effect from January 2000 and are commonly referred to as "new NTS".
History of the Dispute History 3.1. As described above, Oftel determined the charges for access to BT’s NTS services using the NTS formula. This gave that payment to: originating operators was P – D + C and to… terminating operators was D – C where… P was the originating operator’s headline retail price D was the originating operator’s deemed retail price C was the originating operator’s cost based originating retention 3.2 The level of charges was set by Oftel using BT’s determined charges as a proxy for the industry in the absence of other operators’ specific ‘D’. The determinations allowed for the fact that when other originating operators could identify their ‘D’ then this should be used to ensure all operators covered their actual costs. 3.3 Other originating operators’ retail prices for local and national calls may be lower than BT’s. In using BT’s ‘D’ as a proxy the other operator will pay the same terminating outpayment (POLO) to terminating operators as BT, but may receive less retail revenue for the calls. As BT’s interconnection charges are cost based, other originating operators would not cover their network costs unless these are lower than BT’s. 3.4 However, no originating operator was able to provide details of its ‘D’ to BT for the periods prior to September 1997. Thus BT’s ‘D’ was used as a proxy for all operators during the ICAS regime. Oftel has been provided with no specific evidence that Telewest disputed these arrangements with BT for this period at the time. Telewest, however, refer to a letter from BT dated 15 December 1997, in which, Telewest say BT asked for operator specific data for 1996/97 NTS information to be supplied by 17 June 1998. Telewest say that they did not receive this letter and BT have been unable to supply a copy. However, in response to a fax from BT received by Telewest on 18 June 1998, (also not supplied) Telewest wrote to BT providing 1996/97 data on 19 June 1998. The information provided by Telewest appears to have met the criteria requested by BT and should have been sufficient for BT to calculate a reasonable, if not exact value for a Telewest specific ‘D’. However, Oftel accepts that BT would have had to accept the information at face value and had no means of verifying it. 3.5 Further, BT in a letter also dated 15 December 1997, wrote to operators asking them to supply details of the level of their individual ‘D’s, with effect from 1 October 1997 (ie: under the NCC). The timescales set for the provision of these charges were 2 January 1998 for BT transit traffic and 31 March 1998 for BT terminated traffic. No operator met these timescales. However, Telewest wrote to BT on 6 May 1998 providing Telewest retail prices as at 1 April 1998 and other data, albeit not complete, for calculating Telewest’s ‘D’ for a contemporaneous period. 3.6 BT’s letter of 15 December 1997 asked operators to identify their ‘D’s as soon as possible, as under NCC, unlike ICAS, the aim was that interconnect charges would be agreed and set at the beginning of the period and not subject to later adjustment. Further, given the delay in providing the information, BT’s letter offered to backdate the application of operator specific ‘D’ to 1 September 1997 for operators who provided the information in the time scales proposed. Thereafter, charges would be reviewed quarterly and these would apply to future settlements. 3.7 Telewest wrote to BT and Oftel in early 1998 expressing concern about BT delays in backdating the charges to 1 October 1997 as well as indicating its concern over a number of policy and implementation issues with the NTS formula. This culminated with a request to Oftel, on 1 May 1998, "that Oftel investigate BT’s apparent decision to not retrospectively adjust Telewest’s LCFA payments to reflect the Telewest-specific D from 1 October 1997". 3.8 Separately, on 9 June 1998, BT also wrote to Oftel about the difficulties it was experiencing obtaining operator specific information on ‘D’s and the fact that the few replies it had received to its letter of 15 December 1997 were "either incomplete or based on another methodology". With BT’s agreement, this letter was circulated to the industry, including Telewest. Oftel asked for responses by 26 June 1998. No replies were received. However, Telewest wrote to Oftel on 25 June 1998, expressing concern about the way BT had unilaterally set deadlines for provision of the NTS information and about BT’s role as a transit operator. 3.9 On 2 July 1998, Oftel chaired the first NTS Focus Group meeting (mentioned above) which, inter alia, had identified the issue of obtaining information on operator specific ‘D’s and set a target date for resolution of this by 30 September 1998. 3.10 Oftel wrote to Telewest on 10 July 1998. In that letter, Oftel noted that BT had set the deadline of 31 March 1998 for the provision of information on operator specific ‘D’s because of the difficulties BT would have in recovering consequential over payments to terminating operators where BT acted as the transit operator. Oftel referred to the NTS Focus Group’s target for resolution of issues by 30 September 1998 and suggested that Telewest’s concerns would be resolved by the output of that Group. 3.11 At the second meeting of the NTS Focus Group on 16 July 1998, a sub-group was set up to resolve ‘inter-operator process’ issues. This, led by Telewest, reported back to the third Focus Group meeting in August 1998. At this meeting, BT voiced concern with the workings of the NTS formula for transit calls. In particular, BT had no contractual control over payments it was receiving from originating operators and the payments terminating operators were seeking for access to their NTS services. Telewest responded that they did not believe originating operators would deliberately seek to undermine terminating operators’ services by excessive discounting. 3.12 A further meeting of the NTS Focus Group took place on 4 September 1998, where problems were identified in implementing changes to related interconnect prices following a change in an NTS retail price by the originating operator. However, other than this, the NTS Focus Group was confident that a workable solution could be reached and codified in a Manual with agreement reached, in principle, on the new arrangements for establishing operator specific ‘D’s on a contemporaneous basis coming into place from 1 January 1999. A sub-group was established to develop this Manual. It was reported at a meeting of the NTS Focus Group on 29 September 1998 that this manual would be ready ‘in the next three to four weeks’. There were, though, some objections from terminating operators who saw themselves facing higher charges which they would be unable to verify but, the new proposals were subsequently agreed at further NTS Focus Group meetings in October 1998. 3.13 On 22 October 1998, Oftel wrote to Telewest advising that, because of the agreement for the management of Operator specific ‘D’s, Oftel proposed to take no further action in relation to Telewest’s representations of 1 May 1998. 3.14 On 13 November 1998, BT e-mailed Oftel to advise that it was making amendments to its own D, retrospective to 1 October 1997, to reflect higher discounts (11.4534% rather than 7.5%) but until the new process for identifying originating operator’s ‘D’s was operational (ie from January 1999), other operators’ ‘D’s would be assumed to be equal to BT’s. The e-mail also revealed that BT was taking the lead in drafting the ‘NTS Manual’ to put these new processes for identifying ‘D’s into place. 3.15 However, the Manual was not finally produced until January 1999. It was then considered too complex and unwieldy by other operators. The Manual never passed its draft form and no attempts were made by the industry to complete that part of the NTS Focus Group’s work. Thus it was left to individual operators to continue to seek agreement with BT.
3.16 Oftel has no evidence of attempts by Telewest to press BT to implement operators specific ‘D’s during most of 1999. However, Telewest lodged ‘review notices’ on 9 November 1999 and 23 December 1999 with BT. These review notices sought to re-open the interconnect agreement with BT under either Clause 19.1.3 or Clause 19.1.7 (where a review of the agreement can be invoked where the parties agree in writing that there should be a review or where "the Agreement or any part thereof has ceased to be reasonable"). It was proposed to pay BT, with effect from January 2000, the same for local call fee access calls as they do for ordinary local calls. This would have increased Telewest’s retention substantially and taken it outside of the NTS formula principles. BT responded that it was "unable to accept (the) request for a review under condition 19.1.7 because of the constraints regarding access to the services currently covered by the NTS formula, the fact that there a number of unanswered issues relating to NTS which needed resolving on an industry wide basis and that because the request could prejudice the recovery by BT of its transit costs and BT was unable to change them without an equivalent agreement for terminating arrangements".
3.17 On 4 May 2000, Cable & Wireless referred a dispute with BT in relation to its operator specific ‘D’ for the period 1 October 1997 to 31 December 1999 (with a request regarding its ‘C’). The Director issued a determination resolving that dispute on 29 March 2001. Telewest say that, although they had planned to lodge a formal determination request with Oftel in early 2000, it suspended its referral to Oftel pending the outcome of the CWC determination. Telewest referred its dispute to the Director after the Director had issued a draft determination in the CWC/BT dispute.
The Operators’ initial representations Telewest 4.1 The arguments put forward by Telewest orally and in writing are summarised as follows. In relation to the charges for the period from 1 April 1995 to 30 September 1997, Telewest refer to the ICAS arrangements whereby Oftel determined interim interconnection charges at the beginning of the period in question and then determined final charges after the end of the period when BT’s Regulatory Accounts were published and the exact costs of providing the services were known. Telewest note that the final charges replaced the interim charges so, settlements were made retrospectively between BT and other operators. Telewest argue that the Director can make a direction which would override any contractual agreement between Telewest and BT for these periods. Telewest do not accept that it is valid to argue that backdating a direction in excess of five years is unfair just because an Oftel determination in November 1999 denied BT the ability to apply actual routing factors retrospectively. 4.2 Telewest argue that it has always been clear from Oftel’s 1996 determinations of BT’s interconnection charges that the ONO specific ‘D’ should be applied and that those involved in the provision of NTS would have been aware of the need to make specific provision in their accounts to prepare for the subsequent application of the operator specific ‘D’. 4.3 Telewest further argued that they provided BT with details of their 1998 and 1996/97 ‘D’ details on 6 May 1998 and 19 June 1998 respectively. Telewest say that, specifically, in respect of the period from 1 October 1997 they were led to expect retrospection from that date in statements by BT. They acknowledged the difficulty that BT faced in acting as a clearing house in respect of Telewest’s traffic which terminated on other operators’ networks (ie: transit) and agreed to support the industry initiative to resolve the issue but did not consider that an adequate reason not to implement Telewest specific ‘D’s in due course retrospectively. Further they say that BT’s stalling on the implementation of operator specific ‘D’s in 1998 and 1999 and the failure of the industry to reach universal agreement are not acceptable arguments for BT not to implement Telewest specific ‘D’s now. Telewest refer to their representations to Oftel, mentioned above, as continuing evidence of their wish for BT to implement Telewest specific ‘D’s for the period 1 October 1997 to 31 December 1999. 4.4 Telewest acknowledged that they received BT’s letter of 15 December 1997 asking for contemporaneous operator specific information from 1 October 1997 by 2 January 1998 and 31 March 1998 but that they did not supply all of the data to BT. Telewest stated to Oftel that it had to trawl for the data so it only submitted data for a short period on the basis that once that was agreed then it would have a basis to go forward. It is Telewest’s view that it was appropriate to provide sample data to establish a process for assessing Telewest’s ‘D’ before submitting further data. BT 4.5 BT’s submissions are summarised as follows. BT say that they have never disputed the right of originating operators to propose their own ‘D’s. BT engaged in considerable attempts to agree values for operators’ ‘D’s but, an agreement was never reached. Also, BT states that, as a result of its considerable involvement in industry wide negotiations, it never gave Telewest an expectation that it would agree with Telewest in isolation. BT note that the dispute also refers to transit traffic and point to the practical impossibility of BT recovering higher payments from terminating operators retrospectively in order to cover the change in Telewest’s ‘D’s. 4.6 BT say that its approach of asking operators to provide sufficient details relating to their values for ‘D’ were entirely reasonable. They acknowledge receipt of Telewest’s retail prices and discounts but say that BT had no way of validating the information (in the same way as BT had to justify its discounts). BT sought a method of validation which was agreed by all the industry. However, given the cessation of the industry talks, BT assumed that "industry is generally content for the status quo to remain". 4.7 BT also point to the fact that the principles of the NCC regime are that it is forward looking. It also points to Oftel’s determination of November 1999 relating to BT’s discounts where Oftel determined that the discounts should not be backdated as, inter alia, the other terminating operators would be unable to recover the additional payments made to BT retrospectively and would have to absorb them. BT states that they would be in a similar position in respect of Telewest transit calls. BT also argued that it would be unfair to expect BT, as a terminating operator, to make retrospective payments unless all other terminating operators were doing the same. 4.8 In relation to the period prior to October 1997, BT note that ICAS allowed for retrospection in general terms and not just for Operator specific ‘D’ in particular. BT say that no usable information was provided by operators. BT says that the information was provided, including that provided by Telewest, was unverifiable, for example because BT had no way of validating Telewest’s figures. 4.9 In relation to the NCC period from 1 October 1997, BT say that, having made a conditional offer (by the letter of 15 December 1997) to vary the charge, and the lapse of that offer without acceptance, the charge remained unaltered. BT believes the money which it has paid is the correct charge in accordance with the terms of the interconnect agreement between it and Telewest and there was no agreement otherwise.
The draft decision and responses by the parties The draft decision 5.1 In summary the Director issued the following draft decision for consultation by the parties. In relation to Telewest’s operator specific ‘D’ for the period 1 April 1995 to 31 December 1999, whilst there was correspondence and meetings between the parties on the application of Telewest specific ‘D’s in relation to the period 1 October 1997 onwards in 1998, and in late 1999, at no time was there a formal agreement that Telewest’s ’D’ would be retrospectively applied. Telewest may have had an expectation that BT would do this, but failed to accept BT’s conditional offer. Telewest also failed to provide information within the time allowed by BT or to formally contest BT’s deadline dates at the time. BT’s offer therefore lapsed and no agreement was made. There is minimal evidence that Telewest disputed the non-application of Telewest ‘D’s for the period 1 April 1995 to 30 September 1997. 5.2 As a consequence and having considered the facts specific to this dispute and the matters set out in Regulation 6(8) of the Regulations, in the absence of an agreement to do so, the Director considered that BT was not required to make retrospective repayment of any ‘overpayments’ made by Telewest by virtue of differences between its ‘D’ and BT’s calculation of its ‘D’ in respect of either BT terminating traffic or traffic which transited BT for termination on other operators’ networks. The Director’s considerations leading to his draft decision are set out from paragraph 5.1 of the draft direction issued for consultation. BT’s Response 5.3 BT welcomed Oftel’s decision and, as previously stated, believes Telewest’s request for backdating is unreasonable. BT acknowledged that whilst there had been industry discussions on this subject, no agreement had ever been reached, formal or informal, on backdating a Telewest ‘D’. 5.4 BT also stated, in response to paragraph 5.5 of the draft direction, that in relation to ICAS periods in Telewest’s case, negotiations were still taking place on BT’s retrospective charges and settlements, and agreement was expected shortly. Telewest’s Response 5.5 Telewest indicated that whilst it could dispute Oftel’s legal analysis of the dispute it would, instead, focus on Oftel’s position and role in certain areas identified by Telewest. 5.6 First Telewest commented on how, in its view, Oftel’s draft direction, in supporting the use of BT’s ‘D’ for Telewest’s traffic effectively ruled out competition in retail prices for NTS calls as a required norm during the relevant period. Telewest stated that BT had no incentive to implement Telewest’s ‘D’ forcing Telewest to increase its retail prices to BT’s level in late 1999. This meant that, despite Telewest having provided data supporting its ‘D’ to BT and corresponded on the issue, it was not surprising that an impasse existed. 5.7 Telewest reminded Oftel that its actions in relation to its provision of data to BT was governed by two factors. These were the exponential growth in NTS call volumes and the need to almost constantly change retail prices so as to maintain a discount against BT. Telewest’s offer to provide sample data to BT was therefore sensible, a fact that, it submitted, Oftel’s analysis had failed to acknowledge. 5.8 Telewest acknowledged BT’s difficulties in implementing Telewest’s ‘D’ because of its position as a transit operator and its relationship with third party terminating operators. Telewest regards this as a failure in regulatory structure, specifically the BT Standard Interconnect Agreement (SIA). Telewest submitted that terminating operators have no incentive to accept Telewest’s specific ‘D’ and every incentive to maintain ‘Ds’ at the BT level. Telewest stated that it was not surprising that they failed to co-operate to implement an industry process to establish and maintain operators’ specific ‘Ds’. Telewest stated that this was, and remains, a market failure which warrants Oftel’s action within its role in the NTS focus group. Telewest said that it raised this again formally with Oftel in 1999, but this was not mentioned in the draft direction. 5.9 On the basis of the above, Telewest maintained that Oftel’s draft direction failed to place sufficient emphasis on the broader dynamics which underpinned the actions of Telewest, BT and terminating operators during the relevant periods. As such, Telewest considered that, the draft direction was incomplete and requested that it be amended accordingly in the belief that further in doing so, and with further consideration, Oftel may reach a significantly different analysis.
The Director’s General’s Consideration 6.1 The Director has considered this dispute between BT and Telewest on the specific facts and evidence before him. Any future disputes involving other operators’ specific charges will likewise be treated on a case by case basis on the evidence provided to Oftel. 6.2 Before addressing the comments made by the parties in response to the draft direction, Oftel believes it is necessary to repeat the analysis behind the draft decision. Two possible approaches to determining the outcome of the dispute have been considered. First approach 6.3 The first approach was to decide whether, from the correspondence between the parties and other evidence, Telewest had a reasonable expectation that it would receive a repayment of the difference between its ‘D’ and BT’s for both or either of the two distinct periods of the dispute (ie 1 April 1995 to 30 September 1997 and 1 October 1997 to31 December 1999) and that it was reasonable to rely on such an expectation. 1 April 1995 to 30 September 1997 6.4 Oftel’s determinations of BT’s interconnection charges made clear the principle that originating operators’ ‘D’s should be used in the NTS formula. However, for BT to implement this, BT needed information from other operators to apply the correct figures in the formula. Furthermore, given other operator’s figures were likely to be lower than BT’s, and hence BT would be paying them more than BT it was itself receiving for NTS calls BT originated, it was reasonable that BT had some comfort that the figures provided were correct. As terminating operators were also offering NTS services and would be affected adversely by any agreement by BT to pay higher amounts to originating operators, it is also reasonable to expect any agreement to be reached at any industry level in a transparent manner. 6.5 There is no evidence that any operator provided any information to BT of their individual ‘D’s or the means of calculating them prior to Telewest’s letter to BT of 19 June 1998. 6.6 Telewest point to the arrangements for interim and final charges and for retrospective payments to be made. However, Oftel’s understanding is that BT has largely implemented the determinations of final charges under the ICAS regime and reached agreement with operators (see paragraph 5.4) on this basis settling outstanding amounts. The retrospective nature of the ICAS provisions should not be taken as providing that retrospective payments may be made at any time. 1 October 1997 to 31 December 1999 6.7 The same considerations, in respect of the need for operator specific ‘D’s to be transparent and verifiable, and for there to be an industry agreed methodology which apply in relation to the ICAS period also apply for the NCC period 6.8 It is clear for this period that BT did make attempts to encourage operators to provide the necessary data in support of their ‘D’ in its letter of 15 December 1997. The fact that Telewest failed to meet BT’s required timescale for provision of the information does not mean that it necessarily relinquished any expectation of receiving retrospective payments when it was eventually able to provide the necessary information to BT. Furthermore, as set out above, Telewest corresponded with BT on the issue of retrospection in 1998 and from late 1999 onwards in which Telewest stressed its wish for retrospection. It was not until December 1999 that BT formally said that it did not intend to backdate Telewest’s ‘D’ to October 1997 and reversed previous statements of intent to backdate. Further, BT also, in December 1999, refused to apply a Telewest ‘D’ in the absence of Telewest ensuring that terminating operators were willing to accept the corresponding reduction in the payment to them. BT suggested that this was Telewest’s responsibility and suggested that Telewest raise it at the forthcoming NTS Focus Group and at a forthcoming Operator Policy Forum (OPF). Assessment of Legitimate Expectation 6.9 Based on these facts, the Director has to consider whether Telewest’s expectations are legitimate. He has also to consider the extent to which they are outweighed by BT’s insistence on a whole industry solution and the onus on Telewest to reach agreements with terminating operators for transit calls. A further consideration is the legitimate expectation of terminating operators and service providers that these issues would have been resolved long ago. 6.10 Telewest have urged the Director to take this approach given that they accept that there was no agreement with BT on Telewest’s ‘D’. However, the Director continues to believe that any decision reached on this approach would be open to reasonable challenge from the ‘losing’ party or affected parties. Second Approach 6.11 The second approach Oftel could adopt would be to anticipate the basis of a ruling given by a court in the event of such a challenge. The Director continues to consider that this is the better approach in this case. This was also the approach taken in the resolution of the dispute between Cable & Wireless and BT. 6.12 The Director’s decision has been based on legal advice, an analysis of the facts (including consideration as to whether there was an agreement between the parties in law) and consideration of the criteria set out in Article 9(5) of the Interconnection Directive 97/33/EC (as implemented in Regulation 6(8) of the Regulations) The consideration of the latter has meant that the Director has considered, inter alia, the relevant market positions of the parties and the public interest. 6.13 The Director has been presented with minimal evidence that Telewest presented BT with reliable and verifiable data for BT to implement Telewest specific ‘D’s for the ICAS period 1 April 1995 to 30 September 1997. The absence of evidence suggests that it was not possible for originating operators to provide that data and that BT’s ‘D’ was used as proxy. There is no evidence that Telewest raised this as formal dispute with BT. 6.14 For the NCC period, 1 October 1997 to 31 December 1999, Telewest actively engaged in the debate about devising a solution for calculating a process where operator specific ‘D’s could be identified and verified in a transparent way. Telewest also actively sought BT’s agreement to implement a Telewest specific’D’ based on data provided to BT. However, Telewest did not provide this information in the timescale set by BT in its conditional offer for backdating to 1 October 1997 and have given no reason for not doing so. That offer lapsed without acceptance by Telewest. After that time, BT was only prepared to consider any agreement on an industry wide basis. 6.15 Further, BT was reluctant to implement Telewest’s ‘D’ on the basis that they were not verifiable and in the absence of the industry agreement on the process for establishing ‘D’s which was being negotiated during late 1998. However, when the industry failed to agree the draft Process Manual in late 1998/early 1999 relating to establishing operator specific ‘D’s on a contemporaneous basis, there is no evidence that Telewest continued to press its claims for backdating of ‘D’s until December 1999 at which time BT rejected Telewest’s claims. 6.16 Telewest say that operators should have accrued the appropriate adjustments in their financial accounts. They add that the NTS formula was clear to terminating operators and any failure by them to provide similar amounts for underpayments can only be regarded as accounting recklessness. Oftel agrees that terminating operators would have been aware of the potential for lower receipts for NTS calls originating on networks of operators other than BT. However, terminating operators also have to price their NTS services to service providers on a contemporaneous basis, the level of which would have been affected by the NTS formula. 6.17 Telewest argue that the use of BT’s ‘D’ meant that it made a loss on handling LCFA call traffic. It states that this was a situation it only tolerated because it expected operator specific charges to be ultimately applied. Without information on Telewest’s costs on a LRIC basis it is difficult to be certain whether Telewest’s assertion that it made a loss is correct. It was open for Telewest to charge its customers the same price as BT for NTS traffic but, it is understood that their retail prices were lower. At this stage, and given the time periods involved (ie over nearly five years), the Director does not consider he can give much weight to this point. 6.18 The Director notes that the effect of putting a requirement on BT to repay ‘overpayments’ to Telewest could result in other originating operators seeking similar repayments from both BT and from other terminating operators who terminate significant volumes of NTS traffic. These operators will in turn have made payments to their service providers based upon revenues received. The Director considers that it would be impractical for them, in turn, to seek repayments from service providers who may no longer be their customers. 6.19 Both BT and Telewest refer to Oftel’s determination in November 1999 in which it denied BT backdating of routing factors in calculating ‘C’. Oftel does not accept that this sets a precedent. Furthermore, Oftel does not consider that the determination it made in March 2001 (which resolved the dispute between CWC and BT) is a precedent. Oftel has considered this dispute on its own merits. Consideration of the Responses to the Consultation 6.20 Only Telewest disagreed with the draft decision and so its comments alone will be addressed. 6.21 In its response to the draft direction Telewest referred to its formal approach to Oftel in 1999 on the subject of market failure perpetuated by the NTS regime. This correspondence was initiated in late 1999 and before the launch of new NTS. Telewest had expressed concern that its attempts to offer lower interconnection payments for calls priced at its local rate, were constantly rejected by BT. Telewest do not interconnect with any other terminating operator and use BT to transit the traffic. 6.22 As a result of this arrangement Telewest only has an interconnect agreement with BT and BT has agreements with all terminating operators. BT’s NTS outpayments to terminating operators are agreed through the OCCN process and published in the Carrier Price List (CPL). BT is thus unable to discriminate between own network originated and transit calls when making outpayments. Telewest believes this implies market failure as it is unable to negotiate separate rates for its calls with terminating operators (a) because it has no agreement with them and (b) they have no incentive to accept any less than BT pays them. Under new NTS, Telewest can only seek to increase its retention by increasing retail prices which would render it uncompetitive. 6.23 Telewest initially chose to offer lower local call rates than BT but was required to pay BT an amount to cover BT’s agreed outpayment with terminating operators plus transit. Telewest argued that this left it operating at a loss, hence its attempt to obtain retrospection of its ‘D’. Oftel notes, however, that if BT had accepted Telewest’s ‘D’ from the start it would have had to seek to offer lower outpayments to terminating operators for calls from Telewest in order to ensure it recovered its regulated costs. Had BT’s proposal been rejected, under the terms of the BT SIA, it would have found itself in dispute with terminating operators over a charge over which it had no control. 6.24 Chapter 3 of this document describes the NTS focus group’s attempt to agree a process for managing interconnection charges for NTS calls from other originating operators. A verbal process was agreed but ultimately failed because the focus group as a whole failed to agree the ‘NTS Manual’ drafted by BT. Following this, Telewest made sporadic attempts to revive the debate including its 1999 approaches to Oftel but Telewest says BT refused to negotiate with it in the absence of an industry-wide agreement on payments. 6.25 Telewest put its case to Oftel in writing, and at a meeting, in November and December 1999. Telewest had found itself in a weak negotiating position in regard to its NTS outpayments and sought Oftel’s intervention on its behalf. Oftel’s subsequent written reply confirmed that it did not propose to intervene to set call origination charges for non-dominant operators. 6.26 Telewest also claimed, in its response, that the draft direction placed insufficient emphasis on the broader dynamics which underpinned BT’s, Telewest’s and terminating operator's actions during the period. The Director has considered the comments made by the parties and has concluded that nothing further has been said which changes his initial decision in this matter. Oftel has to take a broad view of the whole market, as well as the requirements in Regulation 6(8) of the Regulations, namely, the interests of the parties, the public interest and the promotion of competition. Accordingly, the Director upholds his initial decision given in the draft direction.
The Decision 7.1 Based on all the evidence available to the Director, he concludes that there was no agreement that Telewest’s ‘D’ would be backdated, and that in the circumstances of this case and in consideration of the matters set out in Regulation 6(8) of the Telecommunications (Interconnection) Regulations 1997, a fair balance between the interests of the parties is reached by directing that BT is not required to :
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